SEOUL, South Korea -- A militant union association withdrew from a crucial three-party committee comprising labor, government and corporate representatives that was formed to address South Korea's thorny labor problems. The move might serve as a warning flag for some foreign investors while highlighting the hurdles that the country still faces in revamping its struggling economy.

The Korean Confederation of Trade Unions, an umbrella group of hundreds of unions that have a total of 550,000 members, said Wednesday that it...